Best Online Tax Software for 2020
December 30, 2019
It doesn't matter whether your small business sells goods or offers services to the general public – if it earns an income for you and your workers, you'll owe taxes on it to the Internal Revenue Service (IRS). However, the tax filing process that used to require stacks of paper, complicated forms and assistance from a tax professional can now largely be conducted on your personal computer, thanks to the litany of tax software options on the market today.
Without tax return software, like the solutions we chose as our best online tax filing software for 2020, it would be more difficult to do taxes online. Without decent tax software, you could miss important tax credits and tax deductions that could end up saving you and your business money in the long run. With the right tax program, you can also avoid costly tax errors.
Tax season can be tough, but with the best tax return software, you can make sure that Uncle Sam gets his share of your business's prosperity by the April 15, 2020 filing deadline without making grievous errors along the way.
Our Best Picks
Best for Self-Employed Filers
Best for Tax Professionals
While it costs slightly more than similar software in this category, TurboTax's features and excellent customer service make it the best online tax filing solution. For instance, business owners using the highest-tier service can search for industry-specific deductions, and the software also manages employee tax forms. TurboTax is available for download or online use, and it is compatible with mobile devices, so you can check your return status on the go. Should you be hit with an audit, TurboTax offers specialized support to make the process less painful.
The program also has tools to help tax professionals plan and analyze a client's taxes, with a built-in dedicated planner and year-to-year comparison. Drake Tax also helps you create a version of your clients' returns for archiving to make future tax decisions easier.
Mom-and-pop operations or startups probably won't need this level of support; it would be overkill for smaller operations. But midsize companies and beyond will find ONESOURCE to be highly reliable, accurate and powerful tax software.
Tax Cuts and Jobs Act Compliance
While all tax software on the market is compliant with the Tax Cuts and Jobs Act of 2017, it's important to know what this legislation entails. Signed into law by President Donald Trump back in December 2017, the bill was touted as a measure to bring financial gains to the middle class and small business owners.
That means entrepreneurs can take advantage of the law's 20% deductions. The deduction is available for qualified business owners at the head of pass-through organizations, such as sole proprietorships, S corporations and partnerships.
That being said, some caveats were put in place at the bill's passage. Depending on if you're filing as a single or married person, what kind of business you run, and how much income you make, you may or may not be able to claim the 20% deduction. Other deductions were removed or altered, so the tax software you select should be able to walk you through these new rules.
For more information on how the Tax Cuts and Jobs Act affects your small business, be sure to check out this article.
Tax Software FAQs
Q: How soon can you file your federal income tax return in 2020?
A: When it comes to filing your federal income tax return, earlier is generally better. As soon as you have all relevant documentation in hand, you can file with the IRS. Employers have until the end of the year to send out their W-2s. Most other tax forms will go out during this time as well.
Q: What happens if you miss the deadline to file taxes?
A: The deadline to file state and federal taxes is April 15, 2020 for nearly every individual and business in the country, though some exceptions may exist. With that date in mind, it's important to make sure you file your taxes on time. If you know that you won't be able to make the original deadline, you can always file for an extension, but only as a preemptive measure. If you are granted an extension, you will have until Oct. 15 to file.
If you fail to meet the deadline and owe the IRS money, you could be charged with a failure-to-file penalty. You can incur this penalty even if you pay taxes but fail to pay everything that you owe. According to the IRS, the penalty is "usually 5% of the tax owed for each month, or part of a month that your return is late, up to a maximum of 25%." Once you're over 60 days late, the minimum penalty for a late filing is either $210 or 100% of the tax you owe, whichever is the smaller amount.
If you fail to pay your taxes on time, the IRS will charge a failure-to-pay penalty that's half of 1% of the unpaid taxes due. While that may not seem like much, that penalty will compound upon itself.
In the event that you fail to file but are owed a return from the government, the consequences become far less dire. The IRS does not levy any penalties against taxpayers who file late and are owed money from the IRS. Taxpayers have a three-year grace period to claim their tax refund, though if they miss that deadline, the money will go to the U.S. Treasury.
Q: Which tax filing software is the best?
A: Through our review process, we determined that Intuit TurboTax is the best overall online tax filing software on the market. Its long list of features and easy-to-use interface, coupled with the ability to get remote help from a CPA, make it a strong solution for most individuals and small businesses. With excellent customer service to guide users through the tax filing process, TurboTax sets itself above its competitors.
Q: What is the easiest tax software to use?
A: H&R Block's online software for self-employed filers is incredibly easy to use. Self-employed individuals already have a lot on their plates, so the fact that H&R Block's software makes filing taxes easier is a huge boon.
You can import tax returns from other platforms you used in previous years to speed up the data input. Self-employed taxpayers who sign up for the company's Self-Employed package can use the software to find business deductions and other beneficial rules that lower their tax burden while increasing their potential tax return.
The software's interface is easy to navigate, and unlike some of its competitors, H&R Block lists its tax filing costs upfront, giving you an idea of how much the service will affect your wallet. The service also gives its users access to professional help, though that service costs extra.
Q: Why would you use tax preparation software?
A: There are many reasons why someone would want to use tax preparation software, but speed and accuracy are the two major factors. Before the advent of computer software to handle the tax filing process for you, people had to enter their information by hand over multiple forms, often writing the same information over and over.
With today's digital options, data input is as easy as scanning an existing form for the relevant information to be automatically added into the appropriate fields. What would take hours to complete by hand takes just minutes with a computer or mobile device.
As for the accuracy factor, it's important to understand just how detrimental any errors or omissions can be to a taxpayer. In the eyes of the IRS, such mistakes are grounds for audits, fines and other injunctions, like levies against your assets. Today's tax software checks your filing for any errors before sending your documents to the IRS. Most modern tax software also checks for any deductions or credits that may be applicable to your tax situation, potentially increasing the amount you receive in a return.
Q: Should I hire a tax professional?
A: Whether or not you should hire a professional to handle your small business's taxes depends on a wide range of factors. No two businesses' tax situations are the same, and the decision should ultimately come down to the complexity and filing status of your company.
Your business's tax filing process is very different from filing your personal taxes. While most individuals can get away with filing a simple 1040, businesses require complex tax forms that often vary wildly depending on the structure of your business. Your personal life also plays a major part in your business's filing needs, as important life situations like your marital status, number of dependents and any income from a different state all matter.
Ultimately, whether or not you should hire a professional comes down to time and money. If you can afford it and don't think you have enough time to run your business and still file on time, you should definitely hire a pro. Similarly, if you're worried that you may improperly file your business taxes, risking your own money and your business because of costly errors, by all means, hire a tax professional.
Ready to decide which tax software is right for your business? Here are more resources for you to consider before making your decision:
- How to Choose Online Tax Software for Business: A Buyer's Guide
- Best Overall Tax Software for Small Businesses: Intuit TurboTax
- Best Tax Software for Self-Employed Filers: H&R Block
- Best Free Tax Software: TaxAct
- Best Enterprise Tax Software: ONESOURCE
- Best Software for Tax Professionals: Drake Tax
To determine the best online tax software for small businesses and different use cases in 2020, we spent dozens of hours researching the top providers. Here is an explanation of our research process and the criteria we used to determine which solutions are the best online tax software.
Locating the Best Services
To choose the best online tax software for businesses, we started with a list of the reputable tax software companies we were already familiar with. We expanded this list to include companies we found in our research, including some from other online review lists, customer feedback and Better Business Bureau ratings. We then eliminated tax software vendors that cater solely to individual taxpayers rather than business owners.
Choosing the Best Services
Of the initial set of tax companies on our list for consideration, 17 made the initial cut: Avalara AvaTax, BNA Corporate Tax Analyzer, Ceridian, Drake Tax, Halon Tax, H&R Block, Intuit TurboTax, Liberty Tax, Thomson Reuters ONESOURCE, Power Tax, ProtaxLink, Sigma Tax Pro, TaxAct, UltimateTax, UltraTax, uTax and Vertex SMB. Most of these tax companies were selected for their viability as the best online tax service for a specific use case, though some fit multiple situations.
Researching Each Service
We then researched each finalist thoroughly. We dug into each vendor's features, watched online tutorials and how-to videos, and tested products when demos were available. Customer ratings with the Better Business Bureau also played a role, as they gave us insight into real customer experiences with the software. We then narrowed down the field to a handful of finalists in each category to determine the best tax services.
Deciding Our Best Picks
When the time came to select a best pick for each use case, we looked at a number of factors. We determined our best picks for online tax software based on features, pricing, ease of use, tax preparation features, tax return disbursement options, filing options and access to tax preparation.